An unexpected drop in US petrol stocks plus news that the Iranian parliament had thrown out the new president's choice for oil minister added to the market's uncertainty and drew a big question mark over oil policy in Opec's second biggest producer.

Oil headed towards its record high of $67.10 as US data showed that petrol inventories tumbled by 3.2 million barrels last week with two weeks of the peak driving season to go.

The market was also watching tropical storm Katrina gather strength over the Bahamas and take aim at Florida's southern tip and the oil-producing Gulf of Mexico, which accounts for up to a quarter of US oil output.

US crude traded 54 cents higher at $66.25 a barrel and London Brent was up 51 cents at $65.16.

Assurances by top exporter Saudi Arabia that it would pump as much oil as its customers need failed to take the sting out of a rally that has lifted oil towards the inflation-adjusted $82 a barrel of 1980, the year after the Iranian revolution.

In Ecuador, which mostly supplies crude to California, output is still down to around 80 per cent of its 530,000-barrels per day level after attacks on oil infrastructure last week.

Traders were also watching for any disruption in Nigeria, the world's eighth- largest crude exporter, after the state-pricing agency instructed the national oil company to recover costs on sales, implying consumer prices are set to rise dramatically. Previous fuel rises have led to general strikes.